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Traders forecast reversal of key Treasury yields

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(Bloomberg) — Traders are betting that 10-year Treasury yields will fall below those on 2-year notes in three months, a sign widely seen as a possible harbinger of a recession.

Treasury forwards are pricing in two-year yields at around 2.29% in June, one basis point higher than the expected yield on 10-year bonds in similar contracts. It breaks it slightly higher than 0.4 basis points on Friday, when the forward market priced in such an investment in this segment of the yield curve for the first time since 2007.

The price of forward contracts contrasts with the Treasury spot market, where 10-year yields remain above 2-year rates. But that bruise has shrunk to around 0.22% from and 1.62% from a year ago, as traders anticipated that the Federal Reserve’s monetary tightening will slow growth or even push the economy into recession.

“Discounted forward curve investing suggests a near-term transition to late-cycle dynamics,” wrote Bruno Braizinha, director of US rates strategy at Bank of America Corp. “The market appears to be defying the landing view.” soft of the US economy that the Fed argued at the meeting of the Federal Open Market Committee in March”.

The 2-year and 10-year yield brusque is closely watched because it has turned negative before every economic downturn since the 1980s. Other parts of the Treasury curve, including the 7- and 10-year brusque, have already inverted.

More broadly, Treasury prices fell on Monday, leading two-year yields to rise above 2% to the highest level since May 2019. The Fed raised borrowing costs last week. for the first time since 2018 and its dot plot suggests policymakers could raise rates at each of the remaining six meetings this year.

original note:

Traders see a key part of the Treasury yield curve inversion for June

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